Eskom seeks $156m penalty from Glencore for poor quality coal supply

13 August 2015 (Last Updated August 13th, 2015 18:30)

South African electricity public utility Eskom has demanded ZAR2bn ($156m) penalty payment from Glencore’s Optimum Coal Mine for supplying poor quality coal.

South African electricity public utility Eskom has demanded ZAR2bn ($156m) penalty payment from Glencore's Optimum Coal Mine for supplying poor quality coal.

Eskom acting CEO Brian Molefe said that the inferior quality coal resulted in weak performance and is causing damage to its equipment and affecting the power plants' overall performance.

Disputing Eskom's claim Glencore said the mine commenced business rescue procedures as a result of its contract to supply coal to Eskom at a lower cost.

Glencore claims Optimum Mine is in financial trouble as a result of its agreement with Eskom, which was renewed in 1993.

Eskom no longer wants to invest in the capital expenditure of these mines and said it wants to exit the three decade contract.

"Eskom acting CEO Brian Molefe said that the inferior quality coal resulted in weak performance and is causing damage to its equipment."

Last week, Glencore said that following an agreement signed, Optimum supplied 5.5 million tonnes of coal a year to Eskom at a cost that is significantly less than the expense of production for a number of years.

Eskom announced in June that it was not willing to renegotiate the agreement and terminated the framework agreement.

However, in early July, Optimum obtained additional funding from Glencore to enable it to continue coal supply.

Glencore said that it will provide all necessary assistance to the business rescue practitioner during the process in order to develop a business rescue plan.